Best Buy Doubles Q3 Net Profit

Minneapolis - Best Buy’s earnings doubled in its fiscal third quarter, hitting $122 million on sales of $6 billion, compared with $59 million during the same period last year.

Last year’s net, however, reflects a $27 million loss from discontinued operations. Eliminating the $27 million, earnings from continuing operations increased 42 percent in the third quarter, ended Nov. 29, to $122 million this year, from $86 million in the third quarter of 2002.

As reported earlier, Best Buy sales jumped 18 percent in the third quarter, to $6 billion, up from $5.1 billion in the third quarter a year earlier, while comp-store sales rose 8.6 percent.

Stronger sell-throughs and lower promotional costs in the third quarter, compared with a year ago, drove up Best Buy’s gross profit rate for continuing operations to 24.8 percent of revenue in the third quarter, a 0.4 percent increase, compared with the 24.4 percent profit margin reported a year earlier. Selling expenses were about the same for the three months, dropping 0.1 percent, to 21.5 percent, compared with 21.6 percent in the third quarter of 2002.

'For the third quarter, the improvement in our year-over-year gross profit rate exceeded our expectations,' said Darren Jackson, executive VP/CFO. 'We expect a modest gross profit rate increase again in the fourth quarter, based on year-over-year rate improvements in several product categories.'

Best Buy’s selling expense reduction for the third quarter was better than expected, said Jackson, who predicted the fourth quarter selling expense rate would be consistent with that of the fourth quarter the previous year.

'Primarily as a result of inclement weather in the Northeast, quarter-to-date revenue trends are modestly below our expectations,' continued Jackson. 'However, we still expect a comparable store sales gain of 6 percent to 8 percent for the fourth quarter, which would bring us to fourth quarter revenue of about $8.3 billion. We believe we will continue to increase our market share in the fourth quarter, particularly in key products such as digital televisions, digital imaging and computing.'

Best Buy’s domestic segment, including Best Buy and Magnolia Audio Video stores, enjoyed a gross profit rate increase of 0.5 percent of revenue in the third quarter, year over year, reflecting more effective management of assortments, promotions and product lifestyles. The segment’s selling expense rate was unchanged at 21.2 percent for the period.

The gross profit rate for Best Buy’s international segment, which includes Canadian Future Shop and Best Buy locations, slid by 0.1 percent of revenue in the third quarter, compared with the same period a year ago, due primarily to increased promotional activity.

For the nine months, Best Buy sales climbed 15 percent, hitting $16.1 billion, up from $14 billion in the third quarter of 2002. Comp-store sales rose 5.8 percent.

Net earnings reached $236 million for the nine months, compared with a loss of $212 million year over year. In the year-earlier period, the retailer reported a $374 million loss from discontinued operations to reflect its Musicland disposition.